454 F.

3d 5

Rafael BAELLA-SILVA; Laura Caruncho-Marcano; Conjugal

Partnership Baella-Caruncho, Plaintiffs, Appellants,
v.
Paul H. HULSEY; Jane Doe; Conjugal Partnership HulseyDoe; John Doe; Cherie K. Durand; Conjugal Partnership DoeDurand; Hulsey Litigation Group, Llc; Palmas Del Sol, S.E.;
Raul Rodrguez; Silvia Leticia Borbolla-Gonzlez; Conjugal
Partnership Rodrguez-Borbolla; Arturo Baella; Francisco
Rulln; Rosita Rulln; Conjugal Partnership Rulln-Rulln,
Defendants, Appellees.
United States Fidelity & Guaranty Company, Defendant.
No. 05-1214.

United States Court of Appeals, First Circuit.

Heard March 10, 2006.
Decided June 30, 2006.

COPYRIGHT MATERIAL OMITTED Jos A. Andru-Garca, with

whom Andru & Sagarda Law Office, was on brief, for appellants.
Paul H. Hulsey, with whom Cherie K. Durand, William J. Cook, and
Hulsey Litigation Group, LLC, were on brief, for appellees.
Before TORRUELLA, Circuit Judge, HANSEN,* Senior Circuit Judge,
LYNCH, Circuit Judge.
HANSEN, Senior Circuit Judge.

Rafael Baella-Silva, Laura Caruncho-Marcano, and the Conjugal Partnership

Baella-Caruncho (collectively "Baella-Silva") appeal the district court's
judgment assessing liquidated damages and an additional monetary sanction
against Baella-Silva.

The sanctions order at issue here was entered after the district court determined

that Baella-Silva had breached a prior settlement agreement which had been
completely incorporated into the district court's earlier dismissal judgment. The
settlement resolved a dispute concerning the allocation of attorneys' fees
between Rafael Baella-Silva, an attorney, and the Hulsey Litigation Group,
LLC, including attorneys Paul H. Hulsey and Cherie K. Durand (collectively
"Hulsey").
3

The fee dispute arose over an award of attorneys' fees resulting from their joint
efforts in representing a Puerto Rican company, Palmas del Sol, S.E., in
litigation against United States Fidelity and Guaranty Company (USF & G)
(hereinafter referred to as "the USF & G litigation"). Baella-Silva began as the
lead attorney for Palmas del Sol, but when the USF & G litigation was removed
to federal court, he retained the aid of the Hulsey Group. Later, Baella-Silva
completely withdrew from the case, but before his withdrawal, he secured an
agreement for his accrued fees. In the arrangement, Hulsey agreed to remit to
Baella-Silva a certain percentage of any attorneys' fees awarded in the USF & G
litigation. The USF & G litigation produced a settlement in favor of Palmas del
Sol, triggering the attorneys' contingent fee arrangement with their client.

Baella-Silva filed this breach of contract action in the local court of the
Commonwealth of Puerto Rico on September 2, 2004, alleging that Hulsey had
refused to pay him the agreed upon percentage of the contingent fee. On
September 10, 2004, Hulsey removed the case to federal court, asserting the
existence of complete diversity between the real parties in interest for purposes
of federal jurisdiction. Hulsey simultaneously asserted that although nondiverse
parties appear in the caption, they had been fraudulently joined by Baella-Silva
in an attempt to defeat diversity jurisdiction.

Baella-Silva opposed the removal and requested that the case be remanded back
to the Commonwealth court due to a lack of complete diversity. USF & G
deposited the disputed funds with the clerk of court. The district court held a
hearing on the motion to remand on Friday, October 1, 2004, but did not rule on
the motion because the parties entered into a settlement agreement concerning
the attorneys' fee litigation on the same day. The district court incorporated the
settlement into its judgment (hereinafter "the settlement judgment") and filed it
under seal.

The settlement judgment resolved the attorneys' fee issue by awarding a

specified sum to Baella-Silva and allocating to Hulsey the remainder of the
amount deposited with the clerk. In addition to settling the fee dispute, the
settlement judgment included a confidentiality clause providing for liquidated
damages in the amount of $50,000 in the event either party disclosed the terms

of the settlement agreement, and Baella-Silva expressly relinquished all claims

against his former client, Palmas del Sol, and its partners relating to the USF &
G litigation and agreed to have no contact with anyone working for or on behalf
of Hulsey, Palmas del Sol, or its partners. The settlement judgment states that
all parties agree to accept the district court's jurisdiction and that the district
court "shall retain jurisdiction to enforce the terms of this [a]greement." No
party appealed the settlement judgment.
7

On the following Monday, October 4, 2004, Baella-Silva electronically filed on

the federal district court's public docket a motion for disbursement of funds,
which disclosed some of the details of the sealed settlement judgment. BaellaSilva also filed two lawsuits in the local Commonwealth court against Palmas
del Sol and its individual partners for amounts allegedly owed to him. Hulsey
immediately filed a motion to suspend disbursement of all funds and to impose
sanctions, asserting that Baella-Silva's actions breached the express terms of
the settlement judgment by disclosing its confidential terms as well as by suing
and harassing Palmas del Sol and its partners.

Following a hearing, the district court entered a sanctions order on December

22, 2004, concluding that Baella-Silva had breached the confidentiality clause
by filing the motion for disbursement electronically, where it was posted live
on the clerk's public docket for approximately one hour before he requested the
clerk to seal the motion. Accordingly, the court entered judgment against
Baella-Silva in the amount of $50,000 for liquidated damages as set forth in the
settlement judgment. The district court also found that Baella-Silva had
breached the settlement judgment a second time by filing two separate lawsuits
against Palmas del Sol and its individual partners, seeking damages totaling
$20,320. The district court assessed an additional sanction of $20,320 for this
breach. The district court denied Baella-Silva's motion to reconsider, and
Baella-Silva timely appealed the district court's sanctions order.

On appeal, Baella-Silva argues that the district court lacked subject-matter

jurisdiction to enter the settlement judgment and the sanctions order due to a
lack of complete diversity. Alternatively, Baella-Silva argues that the district
court erred in assessing liquidated damages and the additional sanctions.

I. Jurisdiction
10

Because the parties settled the underlying dispute, the district court did not
explicitly rule on the jurisdictional issues raised in Baella-Silva's motion to
remand. By incorporating the settlement completely into a final judgment,
however, the district court assumed it had jurisdiction to enter the settlement

judgment. In the settlement judgment, the parties acknowledged and agreed to

that jurisdiction as well as the court's continuing jurisdiction to enforce the
agreement. The parties did not bring a direct appeal challenging the district
court's jurisdiction or any other aspect of the settlement judgment within the
time period provided for appeal. See Lipman v. Dye, 294 F.3d 17, 20 (1st Cir.
2002) (noting that "[w]ithout appeal, the court's prior Settlement Order of
Dismissal became final thus barring any further attempt to reopen the case in
ordinary course"). Now, as part of his appeal of the sanctions order, BaellaSilva attempts to collaterally attack the jurisdictional basis for the settlement
judgment, asserting a lack of complete diversity.
11

"It has long been settled that a lack of complete diversity between the parties
deprives the federal courts of jurisdiction over the lawsuit." Casas Office
Machs., Inc. v. Mita Copystar Am., Inc., 42 F.3d 668, 673 (1st Cir.1994)
(internal marks omitted). Furthermore, "[a] court without subject-matter
jurisdiction may not acquire it by consent of the parties." Fafel v. DiPaola, 399
F.3d 403, 410 (1st Cir.2005). "Weighing against this seemingly `inflexible'
jurisdictional requirement, however, is a strong interest in the finality of
judgments." Id. (internal citation omitted). A district court's express or implicit
determination that it has jurisdiction is open to direct review, but it is res
judicata when collaterally attacked. Id.

12

In an effort to balance the competing policies of observing limits on federal

jurisdiction and respecting the finality of judgments, "this court has established
a high bar for collaterally vacating a judgment for lack of subject-matter
jurisdiction." Id. Namely, the judgment must be void in order to be vacated for
lack of subject-matter jurisdiction on collateral review:

13

A void judgment is to be distinguished from an erroneous one, in that the latter

is subject only to direct attack. A void judgment is one which, from its
inception, was a complete nullity and without legal effect. . . . While absence of
subject matter jurisdiction may make a judgment void, such total want of
jurisdiction must be distinguished from an error in the exercise of jurisdiction . .
. [which] will not render the judgment void. Only in the rare instance of a clear
usurpation of power will a judgment be rendered void.

14

Id. (internal marks omitted) (quoting Lubben v. Selective Serv. Sys. Local Bd.
No. 27, 453 F.2d 645, 649 (1st Cir.1972)). Under this standard, if the record
supports an "arguable basis" for concluding that subject-matter jurisdiction
existed, a final judgment cannot be collaterally attacked as void. Id. at 411.

15

The district court implicitly found it had jurisdiction to enter the settlement

15

The district court implicitly found it had jurisdiction to enter the settlement
judgment. We will therefore treat Baella-Silva's collateral attack on the
settlement judgment in this appeal as we would treat an appeal from the denial
of a motion for relief from a void judgment pursuant to Federal Rule of Civil
Procedure 60(b)(4). See id. at 409. Accordingly, we will independently
examine the record to determine whether there is an arguable basis for
concluding that subject-matter jurisdiction existed or whether the judgment is
void as a clear usurpation of power. See id. at 410 (applying de novo review).
See also Nemaizer v. Baker, 793 F.2d 58, 65 (2d Cir.1986) ("When a district
court has not explicitly noted why it assumed jurisdiction over a suit, appellate
courts will independently examine the record to determine whether a
reasonable basis existed for the lower court's implicit finding that it had
jurisdiction.").

16

Our review of the record convinces us that there is an arguable basis for
concluding that subject matter jurisdiction existed to enter the settlement
judgment. The complaint indicates that the citizenship of the parties is not
completely diverse because Palmas del Sol and its partners are citizens of
Puerto Rico, as is Baella-Silva. The notice of removal, however, avers that
complete diversity exists and specifically asserts that the nondiverse parties
listed on the complaint are not real parties in interest but were in fact
fraudulently joined in an effort to preclude removal to federal court.

17

There are grounds for crediting the averments of the notice of removal. The fee
dispute that resulted in the settlement judgment involved a fee arrangement
entered into only between Hulsey and Baella-Silva, between whom complete
diversity exists. USF & G had deposited the amount of the disputed fees with
the clerk of court in fulfillment of its settlement in the USF & G litigation with
Palmas del Sol. Puerto Rico law does not recognize an attorneys' lien, which
would have made Palmas del Sol a necessary party, see Martinez v. Hernandez,
456 F.2d 262, 264 (1st Cir.1972), and Baella-Silva had withdrawn from his
representation of Palmas del Sol in the USF & G litigation. He had contracted
for his accrued fees directly with Hulsey, not Palmas del Sol or its partners.
Thus, the notice of removal, asserting that Baella-Silva had no claim against the
nondiverse parties of Palmas del Sol and its partners and that they were
fraudulently joined, provides an arguable basis for diversity jurisdiction.
Because an arguable basis for subject matter jurisdiction exists in the record,
the judgment is not void, and Baella-Silva's collateral attack on the settlement
judgment must fail.

18

Baella-Silva also argues that the district court lacked subject matter jurisdiction
to enter the sanctions order. The notice of appeal is timely as to the sanctions
order. "[W]e review de novo the district court's legal conclusion that it had

subject-matter jurisdiction to enforce its judgment." Fafel, 399 F.3d at 410.

"Subject matter jurisdiction may be independent or ancillary." Lipman, 294
F.3d at 20. Ancillary jurisdiction exists where the district court has ensured its
continuing jurisdiction to enforce a settlement agreement either by "including a
provision explicitly retaining [enforcement] jurisdiction" or "by incorporating
the terms of the settlement agreement in the court's order." Id. (citing Kokkonen
v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 380-81, 114 S.Ct. 1673, 128
L.Ed.2d 391 (1994)). See also Fafel, 399 F.3d at 413; Municipality of San Juan
v. Rullan, 318 F.3d 26, 30 (1st Cir.2003). The district court here clearly ensured
its continuing ancillary jurisdiction to enforce the settlement agreement by
doing both. We thus turn to the merits of Baella-Silva's challenges to the
sanctions order.
II. Sanctions
19

Following a hearing, the district court assessed $50,000 in liquidated damages

against Baella-Silva for breaching the confidentiality clause of the settlement
judgment, and the court imposed an additional $20,320 sanction for BaellaSilva's subsequent act of filing two separate lawsuits in Commonwealth court
against Palmas del Sol and its partners, in violation of the settlement judgment.
Baella-Silva appeals the imposition of both sanctions.

20

First, Baella-Silva argues that he did not breach the confidentiality clause by
electronically filing an unsealed motion for disbursement of funds on the
district court's public docket web site. The confidentiality clause of the
settlement judgment provides that the "[a]greement and its terms are
confidential and shall not be disclosed to any person." The clause acknowledges
that "[c]onfidentiality is the substantial consideration for th[e] compromise"
and provides that "[a]ny violation of confidentiality . . . will result in liquidated
damages of Fifty Thousand Dollars ($50,000.00) to be assessed by this
Honorable Court after notice and hearing." (Id. (emphasis in original).) BaellaSilva asserts that absent proof that a third party actually viewed the information
in the motion, the electronic filing does not in itself amount to "disclosure."

21

The district court found that there was disclosure in violation of the agreement,
because the information had been posted on a public website and was
accessible to the general public for nearly an hour. The district court noted,
"Indeed, the very essence of disclosure is present in this case, even if no third
party viewed it." We agree.

22

A breach of a settlement agreement incorporated into an order is a violation of

the court order. Kokkonen, 511 U.S. at 381, 114 S.Ct. 1673. As with civil

contempt actions, we review the district court's ultimate finding that a clause in
the settlement judgment was breached for an abuse of discretion. See United
States v. Saccoccia, 433 F.3d 19, 27 (1st Cir.2005) ("In civil contempt cases,
we first look to the text of the order to determine whether it is clear. As to
findings of fact, we review for clear error, while the trial court's ultimate
finding on contempt is reviewed for abuse of discretion.") (internal marks
omitted); see also Eureka Broadband Corp. v. Wentworth Leasing Corp., 400
F.3d 62, 67 (1st Cir.2005) (noting that "we review the district court's legal
conclusions de novo and its findings of fact for clear error"). We bear in mind
that an abuse of discretion may arise from either "a mistake of law [or] a clearly
erroneous finding of fact." Roger Edwards, LLC v. Fiddes & Son Ltd., 437 F.3d
140, 142 (1st Cir.2006) (internal marks omitted).
23

We see no clear error in the district court's determination that Baella-Silva

violated the confidentiality clause of the agreement. Baella-Silva and his
attorney actively participated in negotiating and drafting the agreement, its
terms were clear, the settlement was incorporated into the district court's
judgment, and that judgment was never appealed. Filing a document on the
district court's electronic filing system is not consistent with keeping
information confidential. Documents filed electronically are immediately
available electronically over the Internet, and the court's website provides 24hour access to the court's electronic docket. The website sets forth a separate
procedure for filing a motion under seal, and that procedure does not include an
option for electronic filing. We think it is fair to presume in this day and age
that every attorney understands that an electronic filing is immediately
available to the public and is not a sealed document. See Mirpuri v. ACT Mfg.,
Inc., 212 F.3d 624, 631 (1st Cir.2000) (stating that it is not excusable neglect
for an attorney to choose to read an unambiguous judicial decree "through rosecolored glasses" and thus cause a misunderstanding); United States v. Magana,
127 F.3d 1, 5-6 (1st Cir.1997) (noting it is reasonable for a court to presume an
attorney knows the local rules of practice, even including those unwritten rules
that have become an established custom).

24

The settlement judgment was itself filed under seal for the purpose of
preventing it from being available to anyone accessing the court's electronic
filing system. The district court stated that the settlement judgment included
specific instructions to the clerk of court concerning the disbursement of the
funds "so as to preclude any of the parties from having to file a motion for
disbursement, and the parties so understood." (Id.) Yet, Baella-Silva filed the
motion electronically, thereby presenting the confidential terms of the
agreement to the general public. Also, USF & G's counsel, a party who was not
privy to the settlement and with whom Hulsey was still involved in litigation,

received an automatic electronic mail notification of the filing. The district

court was not convinced that no one had seen the motion, and in any event,
concluded that public disclosure had occurred by the filing.
25

The district court's findings that Baella-Silva's filing disclosed confidential

terms of the settlement in violation of the settlement judgment are not clearly
erroneous. Nor did the court abuse its discretion in assessing $50,000 in
liquidated damages. The parties had agreed that this would be the proper
sanction for a breach of the confidentiality clause, and that agreement had been
incorporated into the settlement judgment, which was not appealed.

26

Second, Baella-Silva argues that the district court erred by imposing a $20,320
sanction for his filing of two lawsuits in the Commonwealth court against
Palmas del Sol and its partners. The parties agreed that the district court would
retain enforcement authority over the settlement judgment, and, contrary to
Baella-Silva's assertions, no state-law limitations affect the district court's
inherent power to fashion an equitable remedy to punish a violation of its
decree. "A trial court has wide discretion in its choice of sanctions," and "
[o]nce the trial court has chosen a particular sanction, appellate review is for
abuse of discretion." Goya Foods, Inc. v. Wallack Mgmt. Co., 290 F.3d 63, 7778 (1st Cir.), cert. denied, 537 U.S. 974, 123 S.Ct. 434, 154 L.Ed.2d 330
(2002). See Whitney Bros. Co. v. Sprafkin, 60 F.3d 8, 11-12 (1st Cir.1995)
(recognizing "that the district court is better situated than the court of appeals to
marshal the pertinent facts and apply the fact-dependent legal standard"
involved in determining whether to impose sanctions (internal marks omitted)).
When a monetary sanction is chosen, we likewise review the amount of the
sanction only for an abuse of discretion. See Goya Foods, Inc., 290 F.3d at 78.

27

The settlement judgment explicitly prohibited Baella-Silva from having further

contact with any of the partners of Palmas del Sol, unless Palmas initiated the
contact, and Baella-Silva and his wife expressly relinquished any basis they
may have had or ever would have to file suit against Palmas or its partners "for
any reason whatsoever related to the underlying facts of [the USF & G
litigation]." The settlement judgment is clearly worded. The evidence at the
hearing demonstrated that the first of the two post-settlement suits was an
attempt to recover fees for work done specifically to secure standing for Palmas
del Sol in the USF & G litigation. The second suit, seeking fees for unrelated
work performed over ten years earlier when there are no grounds for such a
claim in Puerto Rico law, is easily seen as a transparent attempt to intimidate
and harass the defendants in violation of the agreement. The district court did
not commit clear error in finding that Baella-Silva breached the settlement
judgment by filing the Commonwealth suits.

28

Finally, we conclude that the amount of the sanction, which is equal to the
amount that Baella-Silva sought in the Commonwealth court in violation of the
settlement judgment, is not excessive. "[A] party who seeks to overturn a
monetary sanction on grounds of excessiveness bears a heavy burden." Goya
Foods, Inc. v. Wallack Mgmt. Co., 344 F.3d 16, 19 (1st Cir.2003). "[S]o long as
a sanction is reasonably proportionate to the offending conduct, the trial court's
quantification of it ought not to be disturbed." Id. at 20. Compensation for
losses is not the only factor to be considered, however, because "[s]anctions
stem, in part, from a need to regulate conduct during litigation." Id. Thus,
setting the amount of an effective sanction may include punitive concerns as
well as considerations of deterrence. Id. at 20-21. In light of these multiple
purposes and Baella-Silva's apparent willingness to disregard the terms of the
settlement judgment, we cannot say that the district court abused its discretion
in setting the amount of the additional sanction.

29

We find no abuse of discretion in the district court's sanctions order.

30

Affirmed. Costs are awarded to the appellees.

Notes:
*

Of the United States Court of Appeals for the Eighth Circuit, sitting by
designation